How are credit scores calculated?
Credit scores are a critical component of each person’s financial profile.
A credit score is a three-digit number that’s based on information contained in an individual’s credit report.
Credit scoring companies continually assess information in people’s credit report to determine your unique credit score.
What does a credit score measure? In general, credit scores are a measurement of an individual’s "credit worthiness." Therefore, lenders and creditors will ask permission to check your credit score when you apply for a loan or credit card. Credit scores consider your prior loan/debt payment history, outstanding debt, bankruptcies, and other factors that affect creditworthiness.
At Credit Union of Southern California (CU SoCal), we make checking your credit score easier.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
How are credit scores determined? Read on to learn more.
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What is credit and why is it important?
Credit is a central part of any loan application process, whether you are applying for a credit card, auto loan, a new mortgage, or a mortgage refinance. Some employers will even look at your credit score during the hiring process to gauge a potential employee’s trustworthiness and ability to manage finances.
A credit history and credit score are the primary factors lenders will look at and use to determine a borrower’s ability to repay a loan.
Having good credit means you’ll benefit from better interest rates, more buying power, and better loan terms. Those are the “rewards” for being a low risk to lenders.
What is on a credit report?
Your credit history—including information about your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts—is collected from your credit applications and included in your credit report.
Various credit score components are evaluated and used by the credit scoring companies in calculating credit.
How credit scores are determined
Credit scores are calculated based on a numeric scoring system that is unique to the scoring company.
The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. A FICO score will fall between 350 (high risk) and 850 (low risk).
Everyone who has a credit score will see their credit score change over time as credit is used and bills are paid.
Below is a closer look at credit score components and the factors that affect why credit scores change.
Payment history. Payment history accounts for 35% of a FICO®
Score. As you make payments on your debt, your credit score may fluctuate. If payments are made late and this is reported or goes to a debt collector your score will decrease.
Amounts owed. A person’s total outstanding debt is known as “amounts owed,” and accounts for 30% of a credit score. The more debt you have, the lower your credit score may go, especially if there are late payments.
New credit applications. This counts for 10% of the score. New applications typically result in a small temporary decrease in score.
Credit mix. The types of credit you have is called “credit mix” and this counts toward 10% of a credit score.
Length of credit history. This accounts for 15% of your FICO®
Score and can impact the chances of whether or not you get a loan. Lenders like to see a long history of successful debt management.
Factors that don’t affect your credit score
While credit transactions do affect a person’s credit score, you may be surprised to learn that these personal factors are not credit score components and don’t affect your credit score:
- Marital status
- Debit card use
- Having a credit application denied
- Receiving assistance from a credit counselor
- Payments made for services such as lawn care, rent, and other small business payments. However, if the merchant reports a late payment or non-payment to the credit bureaus, this will affect your credit score.
How often do credit scores update?
Because credit is fluid, there is no fixed timeframe that credit scores update. However, in general, credit scores update every 30-45 days.
Learn more about how often credit scores update.
How to improve your credit score
If you find that bad credit is preventing you from getting approved for credit cards, loans, or jobs, you’ll want to take steps to start rebuilding credit and raising credit scores. Follow these tips ensure your credit score stays high:
1. Pay your bills on time
2. Pay off debt and keep credit card balances low
3. Open new credit accounts only as needed
4. Don't close unused credit cards
5. Dispute inaccuracies on your credit reports
6. Increase your credit limits
7. Use credit monitoring to check your progress
Learn more about how to rebuild and improve your credit score
How to check your credit score for free
There are several ways to get your credit score for free and other methods that come with a fee.
When it comes to the best ways to check credit score in general, the Consumer Financial Protection Bureau suggests these options:
Credit-scoring websites. There are online providers of credit scores, including annualcreditreport.com
Credit card providers. Many card providers, including CU SoCal, provide your credit score on your monthly credit card statement. If you have paperless billing check your credit card’s online dashboard for your score.
Credit counselor. If you have bad credit you may seek the assistance of a non-profit credit counselor to provide you with strategies to help you rebuild credit
. Non-profits offer free services and will provide you with your score as part of the process.
Buy your score. You can buy a score directly from a credit reporting company. You also can buy your FICO score directly from myfico.com
If you’d like to dig deeper into your credit score you may contact each of the three major credit bureaus:
: 800-685-1111 (option 3)
: 800-916-8800 (option1)
Learn more about how to check your credit score.
Tracking your credit score at CU SoCal
At CU SoCal we believe you should have instant and free access to one of the most important numbers in your financial life — your credit score.
With Credit Score and More
, you can check your real time credit score and view your credit history instantly, through Online
and Mobile Banking
. There is no cost or credit card needed. This service is 100% free to all CU SoCal Members.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Get Started on Your Credit Builder Today
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.